Banking: Banks Help Cut Factor Costs

For companies with credit needs that force them to raise capital by factoring accounts receivable, there's an appealing alternative: get a bank involved.

"Once a company has built up a relationship with a factor and proved its creditworthiness, a bank may be willing to assume part of a factoring loan," says Ellen Katzen, a vice-president at Bank Leumi Trust Co. of New York, in New York City. "That will allow a growing business to increase its borrowing limits, and because the bank's interest rates are probably lower than the factor's, it may cut borrowing costs." Companies can approach either factors or bankers about this type of "rate-enhancement" arrangement.

If you've been aiming to reduce your dependence on high-priced factors, you'll discover an ancillary benefit to having a bank's participation in factoring your receivables. "It's a great way for lenders to get to know you -- in a cautious way. Still, you can improve your chances of moving on to a more direct lending relationship," says Katzen.